Author: Blue Lobster

Lock it down!

Quick! Do you have a variable rate mortgage? Has your lender given you the opportunity to lock in your next mortgage rate today since it’s up for renewal in the next 90-120 days?

If the answer to either question is yes, then I’m going to suggest that you seriously consider locking down a fixed-rate mortgage as soon as possible. Mortgage rates are going up. The higher the rate, the more interest you’ll pay to the bank. Why pay more if you don’t have to? If you have the opportunity to renew your mortgage at a low interest rate, then lock it down as soon as possible!

It’s fairly complex. I am certainly no expert but my understanding is this. The 5-year mortgage rates are going up because central banks are expected to raise the bond rates. They’re raising those rates in order to fight inflation. The bond market controls long-term interest rates. That’s the entirety of my understanding of how the whole thing works. You’re encouraged to learn more about this if you’re interested.

The long and the short of it is that the very low 5-year mortgage rates that we see today will soon be gone. Some people are predicting that mortgage rates will double in the next 18 months. You should play around with an amortization calculator. Doing so will give you a good idea of what your mortgage payment when mortgage rates are twice what they are now.

This is not a good time for procrastination. Lock it down! Call your lender and figure out how to secure a fixed interest rate while fixed rates are still very, very low.

Once you’ve locked into a fixed rate, consider making extra payments towards your mortgage. When your mortgage renews in 5 years, the rate is going to be higher. As we all know, higher mortgage rates mean higher mortgage payments. Throwing extra payments at your mortgage while paying a lower rate over the next five years will lessen the impact of renewing at a higher rate. If your budget won’t allow for extra payments, then start a sinking fund. Every time you have some extra cash, squirrel it away. When renewal time rolls around, you’ll have a chunk of cash to throw at the principal. Making lump sum payments is another way to minimize the increase in mortgage payments when you go to renew your mortgage in the future.

Of course, if your mortgage is scheduled to be paid off in the next 5 years, then you need not worry too, too much. You won’t be on the of ones renewing into a higher interest rate environment.

If you have a line of credit, pay it off! Your monthly payment on your LOC is made up of interest and principle. As the interest rates go up, the portion of your payment devoted to interest will also go up. The result is that it takes you longer to pay off the principle. In other words, you’re paying more interest on your line of credit as interest rates go up.

For the record, I’m a huge fan of 5 year rates, so my suggestion in this article applies to the 5-year fixed rate. I only ever had 5 year amortizations when I had a mortgage. To me, it was easy enough to plan life in 5 year increments. Some people like the idea of having a 10 year fixed rate. Others want to lock in a rate for 3 years. You’ll have to pick the timeframe that best suits your life and your goals.

Intergenerational Wealth – Start Them Young

Very recently, I learned that dear friends of mine had opened an investment account for their child who had recently turned 18 years old. My reaction was one of happiness because my friends are nurturing the seeds of intergenerational wealth for their family. The intent is to help the offspring build the habit of investing for the future, to have money in place for a down payment in 5-10 years, and to start retirement planning early. Helping their child today improves the odds that their grandchildren will also have a measure of wealth at some point.

Since the child is only 18 years old, a little will go a long way. As a matter of fact, steady contributions of as little as $50 per month can generate a big cash cushion 5 decades from now. Thats assuming the money is left to compound for the long-term goal of retirement. If the money is spent on a down payment, or other life expenses, then obviously the final amount will be smaller. The more withdrawals that are made, the smaller the final amount.

Earlier is better when it comes to investing.

I’ve never accepted the premise that it’s unwise to start saving small amounts in your teens & 20s. While those are supposed to be years of “carefree youth”, my view is that those years should not equate to carelessness with money. The two need not go hand-in-hand. Starting to invest early is rarely a bad idea.

To my way of thinking, the most important thing is to build the habit of saving and investing. I agree that $50 isn’t a life-changing amount of money. However, the contribution amount likely will not stay at $50 forever. At some point, the amount will increase to $75, then $100, then $200, and possibly more. Once it’s invested, the money will be working non-stop in order to maximize compound growth. How is that a bad thing?

Practicing good money habits is a key factor to succeeding with money as an adult. It’s never too early to build good habits in this area of your life.

It’s true that the 20s and 30s are expensive years for many people. Pursuing an education, buying vehicles, starting families, maybe even buying a home – these are all costly endeavours. I’m not here to argue otherwise. That said, the 20s and 30s are also the very best years for starting to invest. Most people have time on their side when they’re this young. Compound interest works best over longer periods of time.

Not the First Step

Allow me to be clear. My friends’ choice to set up their 18-year old with an investment account isn’t the first step in building intergenerational wealth for their family. I would say it’s the second-last step, or maybe the last step in their plan.

The first step was to set a good example of how to live below your means. My friends had certain priorities for their family and those got funded first. Debt did not become a permanent fixture in their lives. Every month, they paid the full balance on their credit card bills. They used the word “No” so that they could stick to their financial plan. Yet they still travelled as a family. My friends’ children all participated in extracurricular activities. The family built many great memories together and with friends, all while attaining their dreams and goals.

My friends’ next step was to start a registered education savings plan when their child was born. The RESP was fully funded every year. They knew that they only had 18 years before the money would be needed to pay for post secondary education costs. As soon as they could, they started saving for those expenses.

The third step was to pay off their mortgage when their child was in junior high. They did it by making extra lump sum payments where they could, maintaining a budget, and employing a little bit of delayed gratification. They worked hard to eliminate their four-figure monthly debt, aka: mortgage payment.

Between what’s in the RESP and their former mortgage payment, my friends’ child will not have to take on student loans to pursue post-secondary education.

Starting adulthood without student loans is a wonderful leg up on the journey to wealth. No student loans and a decent-sized investment account upon graduation from post-secondary education? Now, that’s an even better advantage! One could even call it a super-power… if one were so inclined.

If you’re lucky enough to be able to spare $50 or $100 per month before the major costs of young adulthood land on your shoulders, then take advantage! Start investing small amounts while you save for other goals. I’m not suggesting that you never have fun. Life is meant to be enjoyed at every stage, so enjoy it! However, I’m urging you to also realize that you also need to pay heed to Future You.

My friends’ offspring is being given a golden opportunity! How many of us wish we could’ve started investing sooner? Or had been encouraged to learn about personal finance in high school?

Even if your parents didn’t do this for you, find a way to do it for yourself.

Inflation is the Non-Stop Money-Eater

Today, I read a Twitter thread about inflation and its impact on money. So many people feel that their paycheques are not going as far as they did before. Their net income is going to shelter, groceries, and utilities. Yet, they feel that it’s harder and harder to survive from one paycheque to the next. Costs are going up while their pay remains the same. They are caught in the grip of inflation, which I like to call the Non-Stop Money-Eater.

I’ve noticed it too. The bulk package of chicken breast at my local grocery store was $27 this time last year. When I went to buy the same package 6 weeks ago, I paid $42. That’s a price jump of $15 in 12 months, or an increase of 55%. That’s inflation at work. My $27 won’t buy me as much chicken today as it did last year. And I’m a Single Person. Every time I leave the grocery store, I wonder how people with families afford their grocery bills. (As a matter of fact, I asked a friend of mine how much their 6-person family spends on groceries in a month. The answer was $2,000. Even accounting for cleaning supplies and personal care products, that’s a huge grocery bill!)

Inflation is a serious problem, for everyone. The lower your income, the more severe its impacts on your household finances. If you’re fortunate enough to have extra money in your budget, then you can better absorb the increased prices. However, your paycheque or investment returns have to continuously outpace inflation. If they don’t, you will eventually reach a point where your income is not enough to cover the higher costs resulting from inflation’s impact on everything.

Inflation Erodes Purchasing Power

Simply put – the Non-Stop Money-Eater will decimate your finances, if given enough time. You can only tighten your belt so much. Even if you got a second or third job, there are only so many hours in a day. You were not put on this Earth to simply work and pay bills. There should be more to life than scrimping from one payday to the next.

At the time of this post, inflation in Canada was at 4.2%. This is the macro number used by the government. Your personal inflation rate might be higher, or lower, depending on your personal expenses. Whether a large number or a small one, the result is the same. Your income is not buying you as much today as it did yesterday. It will take more money to buy the same amount. That means you have less money for everything else. So unless you want to live off your credit cards, or lines of credit, and pay interest to do so, you will have to eliminate something from your budget. Fewer streaming services? A cheaper place to live? Giving up your car?

Again, your life should be more than the daily grind of working, getting paid, paying bills, then working some more. You should be able to breathe without financial anxieties. We can’t all own private jets, third houses, and a stable of Arabian horses. However, you should be able to find your happy medium between barely scraping by and a life of unfathomable extravagance.

For those of you whose incomes are still growing, congrats! You may not have to alter your lifestyle since your purchasing power is keeping up with inflation.

A Few Suggestions

What is the answer to fighting inflation on a personal level? I honestly don’t have a perfect answer that will work well for everyone. I’m not an expert about such things. What I will do is share my opinion on how to dull inflation’s impact if you’re fortunate enough to have some extra money in your budget after you’ve paid for the necessities.

My first suggestion is make good use of your kitchen. I’ve written before about how financially prudent it is to cook the majority of your food at home. A hamburger with fries at restaurants around me will run you atleast $17, and the bottomless soft drink is another $3.50. After tax and tip, the bill is atleast $26. The same money spent at the grocery store combined with 30 minutes in your kitchen will result in far more than 1 hamburger with a side of fries.

Don’t let lack of cooking skills stop you. Thanks to YouTube, you can learn to cook just about anything by watching a few videos and paying attention. Start small then work your way up to the more complicated meals. Maybe you start making your own muffins and cookies so that you don’t have to buy them each day. Then you move on to making simple breakfasts and tasty lunches. Afterwards, you tackle dinner and turn your attention to batch cooking. Your freezer and pantry become your happy places, since they are key to making your tummy and wallet happy too. Much like piano playing and walking, cooking skills get much better with repeated practice. You’ll figure out what you like to eat, and then you’ll master those dishes. Cooking for yourself should be your default choice when you start to feel hungry.

And it’s not too early to start planning for next year. One of my favorite personal finance bloggers has a vegetable garden. Each year, he plants vegetables and harvests them as they ripen. You better believe that his veggie garden saves him a good chunk of money each year. We’re well into autumn and winter’s just around the corner so now’s the time to start thinking about planting next spring. Do you have the room for your own garden? Is there a community garden nearby? Do you have a balcony that can hold a few planters? If you’ve never planted a garden before and you want to, use your downtime in winter to watch and to learn from some gardening videos on YouTube.

My second suggestion is to use your freezer and to stock up on things when they’re on sale. Low-sodium bacon was on sale last week. My mother, my aunts, and I all made sure to get some for our respective freezers. In my corner of the world, bacon is now $1/slice! That was unheard of last year but I doubt the price will fall back to its former level any time soon. My mother and her sisters are all ladies in their 70s & 80s, so they use an old-fashioned app called “a telephone” to share the great prices that they find at the grocery store.

I’m willing to be that you, Dear Reader, have a cell phone. I’ll go out on a limb and assume that you’ll probably want to use apps on your phone to find good prices when you are grocery shopping. Never forget that coupons are your friend. I have an app on my phone that sends me weekly offers on things that I buy most often. When I buy those things, I get points and those points translate to dollars off my grocery total. It’s fantastic to have a bill of $110.77 and only have to pay $0.77 because my points-into-dollars covered the rest.

It should go with out saying that price-matching is an essential tool in your arsenal. Some grocery stores will match a competitor’s price on the same item. This is another way to save money without going to several grocery stores in order to buy the same product at the lowest price. You need to eat, but you don’t have to pay more than necessary to do so.

My third suggestion is to continue investing for the long-term. The capitalist system is not designed to make employees rich. Read that sentence a few more times, and let it sink in until you’ve memorized it better than the alphabet.

Employees’ salaries are a cost of doing business. Every business has a profit-motive. This means that every business benefits by lowering its costs. Lower costs translate into higher profits. Your employer has little, if any, incentive to pay you more money to do your job.

In sharp contrast, there is a built-in incentive to align the interests of investors with the interests of business owners. The corporations need shareholders’ money, or else they wouldn’t sell stock in their company. By investing in low-cost equity exchange-traded funds, you will increase your chances of creating a cash flow that can sustain you. By all means, keep your job if you need it to survive. What I’m telling you is to wear two hats. Be an employee and an investor. If all goes according to plan, then you’ll be doubling your sources of income. Should inflation erode the income from your job, you’ll have your investment income available if you absolutely need it to survive.

No Easy Answers For Everyone

In my humble and inexpert opinion, inflation is not going away any time soon. The cost of necessities will continue to rise, which is not going to be fun. You will need to sit down and figure out how you are going to deal with Non-Stop Money-Eater. What will it take for you to limit its impact on your finances?

Another Little Criticism

Learning about personal finance and investing has been a hobby of mine for the better part of 30 years… wow – that’s a long time! No wonder I make those odd noises when I get up from the couch…

Anyway, one of the first books that set me on my successful path was The Total Money Makeover by Dave Ramsey. I loved this book! I was in undergrad when I read it, and I promised myself that I would follow its tenets once I had graduated and was earning real money.

I’m not sad to say that this is one promise to myself that I’m glad I broke. See, while I still think that the debt snowball is a brilliant strategy for getting out of debt, I’m not so sure about the other steps.

In particular, I take strong issue with the step about only investing 15% of your income after you’ve gotten yourself out of debt.

What’s wrong with 15%?

On the fact of it, saving 15% is a great goal to strive for. My question for other personal financial afficianados is why stop at 15%? If you can comfortably save 20% or 30%, or even 50%, then why not do so?

See, somewhere along the line, I discovered FIRE. It’s an acronym for Financial Independence, Retire Early. Thanks to the vastness that is the Internet, I went deep down the rabbit hole of FIRE. I learned about people who saved 70% of what they earned, who’d lived on $7,000 for an entire year, who’d retired in their 30s! Eventually, I discovered Mr. Money Mustache – a fellow Canadian, whose face-punch imagery caught my attention from the word go.

The FIRE community is varied, like any other community. However, the one thing that they do seem to share is the belief that you need to save more than 15% to become financially independent anytime soon. There’s even this handy-dandy retirement calculator floating out in the world. (Plug in your own numbers – see if you like the answer!)

FIRE and Dave Ramsey seemed to have a lot in common. Both financial perspectives eschewed debt. They both emphasized having an emergency fund and saving for retirement. There are even many in the FIRE community who think Dave Ramsey is great, and happily pay homage to him.

Yet Dave Ramsey… is remarkably quiet on his thoughts about the FIRE movement.

Why is that?

Look. I can’t speak for Dave Ramsey or his organization. Maybe he’s a huge fan of FIRE, but it’s not part of his company’s mission statement. Or maybe he hasn’t heard of FIRE yet. There are a million reasons why he sticks to advising people to only save 15% of their after-tax income.

My theory is that FIRE is an anathema to employers, and Dave Ramsey is a businessperson who needs employees to work for him. As an employer, it makes no sense to encourage the pool of talent from which one draws to become financially independent. Employers have the advantage when employees are dependent on a paycheque. I think that this was most beautifully illustrated in the blog post of other fellow Canadians over at Millennial Revolution.

Allow me to be clear. I’m not for one minute suggesting that Dave Ramsey speaks for all employers. Of course, he doesn’t!

What I am saying is that it would not be in Dave’ Ramsey’s best interest as an employer to encourage the pool of potential employees to strive for financial independence. Think about it. Being FI gives jobs candidates more negotiating power since they don’t need the job to survive. The beauty of the FIRE philosophy is that it gives people choices, including the choice to work for personal satisfaction without consideration of the paycheque. After all, just because one is FI does not meant that one has to RE. If your job brings you joy and you’re also FI, then your are truly and wonderfully blessed. No need to retire early if you don’t want to.

Think about how terrifying that must be for an employer. If money is the primary tool to control the workforce, then what weapon is left when money is not effective? A financially independent pool of employees means the employers have to find another tactic to persuade people to work for them.

In my very humble opinion, 15% isn’t enough.

If you’ve paid off your debts and your budget has breathing room again, I don’t see why you should be implicitly encouraged to spend 85% of your money. Spending at that rate keeps you tethered to your paycheque longer than you may like.

Until recently, I didn’t really consider why Dave Ramsey doesn’t encourage people to pursue financial independence. Yes – some people won’t be able to save more than 15% of their income, even if they’re out of debt. I get that. If you don’t have it, then you can’t save it. However, those aren’t the only people who listen to him.

My question is more about why those who can save more are not being encouraged to do so.

Again, the only theory that makes sense to me is that he doesn’t want to use his platform to encourage financial independence. I find it odd. Firstly, I don’t believe that everyone who calls his show for help loves their job so much that they want to stay for as long as possible. Secondly, one of the very best things that money buys is freedom from doing what you don’t want to do. Thirdly, financial independence doesn’t mean that people become lazy and idle. Instead, it gives them the time to work on what truly makes them happy.

Currently, I believe the following. Pursuing FIRE status will always be an employee-driven social movement. Given its nature, it has to be. After all, as a group, employers cannot maintain their vice-like grasp on power where there is a financial balance in the employment relationship. When employees have the ability to walk away without negative financial consequences, employers run the real risk of losing employees’ labour. A vision remains a vision unless there are minds and bodies that can bring it to life.

The concept of financially independent employees is adverse to the employer’s interests. It’s hardly surprising that employers are not advocating that their employees put some of their focus on saving and investing.

Getting back to Dave Ramsey. His book was written long before the FIRE movement hit the mainstream. I do not believe that he suggested a 15% savings rate in an attempt to maintain the imbalance of power between employers and employees. That’s a pretty broad stroke, and it’s not one I’m intending to make.

What I am willing to say is that the practical effect of his advice to only save & invest 15% works to give employers the upper hand. I’ve had many good jobs in my lifetime, yet none of my employers has encouraged me to save and invest for my future. There’s never been any kind of nudge towards financial independence.

Think long and hard.

The sooner you invest your money, the sooner you can hit the target of being financially independent. There may come a day when you no longer love your job, for whatever reason. When that day comes, you’re going to need to have money in place to pay for those pesky expenses of living like food, shelter, clothing, etc…

I’m not telling you to not follow the Baby Steps. What I am telling you is to think about their practical effect on your personal finances. Take what works… leave the rest.

Beware the HELOC!!!

HELOC is an acronym that stands for home equity line of credit. It is a way for homeowners to access the equity in their homes without actually selling the home. Banks love these kinds of loans because they are secured by the property. For this reason, HELOCs are risky – they put your shelter at risk. This is hardly ever a wise move from the personal finance perspective!

In short, if a homeowner doesn’t repay the HELOC, the bank has the right to foreclose on the home in order to recoup its money.

Another way to think of a HELOC is to view it as a line of credit that is tied to your house. An unsecured line of credit carries a higher borrowing rate, since the bank doesn’t have any recourse if you don’t make your LOC payments as required. Banks presume that most people do not want to lose their house and that they’ll do whatever they have to in order to avoid that unfortunate outcome. As a result, the risk of delinquency is also presumed to be lower than lending borrowers money through an unsecured line of credit. Since the HELOC has a lower risk, the bank charges a lower rate of interest.

Those who’ve been reading my blog for a while now already know that I hate debt. Payments to creditors prevent most people from investing for their futures. Debt forces people to put today’s income towards paying for past purchases.

I especially despise the HELOC. Like all loan products, banks benefit from them more than the consumer. If you have a HELOC, you have to make payments on the loan each month. And if you miss enough payments, then you’re considered delinquent on your debt and the bank can take your house away from you. This is why I personally believe that HELOCs are risky.

Remember! A HELOC is a charge registered against your mortgage. When you take out a HELOC, you’re putting your home up as collateral.

If you really must take out a line of credit, then I would urge you to get an unsecured line of credit. This kind of LOC is not tied to your house. If you fail to pay it, you certainly damage your credit rating… but no one is going to take away your home. It might take 7 years to repair your credit, but so what? It’s better that you repair it from the comfort of your own abode, than suffer the double-whammy of repairing your credit and also losing your home through foreclosure.

Another reason I very much dislike the HELOC is that it is a loan that can be called at any time. A HELOC is a demand loan. That means your bank can demand that you repay it whenever they want.

Let’s say you take out $45,000 of debt via a HELOC against your $375,000 house to do… whatever. (Equity withdrawn via a HELOC can be spent however the homeowner sees fit.) You agree to repay the HELCO at a rate of $750 per month. You’re making your payment as agreed, and getting on with the business of living your life. For reasons they need not declare, your bank gets twitchy and demands that you pay off your outstanding HELOC balance. And if you don’t, they’ll proceed with foreclosure proceedings to get their money bank. You’re suddenly in the position of losing your $375,000 house over a $45,000 debt…Not good!

How are you going to repay the debt? If you’d had the money in the first place, you wouldn’t have borrowed from the bank, right?

I’d suggest that you think long and hard before you take out a HELOC against your home. Make sure you understand what you’re risking before you sign on the dotted line. And if you already have a HELOC, then I suggest that you pay it off as soon as you can.

Life is stressful enough. The risk of your home possibly being the subject of a foreclosure is one added stress that you should work very hard to avoid.

Money Goals – Are you meeting yours?

How are you doing with your money goals?

At the time of this post, two-thirds of 2021 are in the rearview mirror. We’re heading into the final quarter of the year, so you should have a good handle on your progress. Have you been able to allocate your money towards your most important goals? If not, why not? And if your plans have been derailed, what are you doing to get them back on track before 2022 gets here?

Personally, I’m a big fan of writing things down. I love putting my goals on paper, then referring to that paper throughout the year. Of course, I’m not perfect… and some of my goals don’t get accomplished. It’s not unusual for me to look at my handwritten notes 13 weeks later and say something to myself like: “That’s odd. I don’t remember wanting to do this.”

This is not a good way to accomplish my goals. I’ve learned the following insight about myself – I have the memory of a fruit fly with Alzheimer’s.

And I’m not exaggerating by much. The major money goals are met every single year:

  • contribute the max to my TFSA in January? Check!
  • pay annual insurance premiums in one lump sum? Check!
  • invest a portion of every paycheque into my exchange-traded funds? Check!

And do you want to know why the major money goals get accomplished every year? It’s mainly due to the fact that I don’t have to think about doing anything. I’ve set up automatic transfers to take care of these goals. My paycheque is deposited to my bank account – my automatic transfers whisk money into various savings & investment accounts – my goals are met without any added effort on my part! It’s a magical, wonderful process.

Getting back to those handwritten goals that are forgotten, moments after I put down my pen…

Yes – those ones deserve a bit more attention. I haven’t come up with a perfect solution for those ones, but I’m working on it.

I’m a fan of Tangerine. This bank allows me to have 5 sub-accounts under one bank number. Each sub-account has a name. Tangerine also allows me to create Money Rules, which are fantastic! This week, I took another step towards meeting my goals. Each sub-account is named after my most important priority.

Every two weeks, a part of my paycheque is transferred into Sub-Account #1. My first sub-account is a slush fund for things that occur each year, but irregularly. Think unexpected car repairs or appliance replacement. These items have to be funded, and I would prefer not to use credit to pay for them. Also, I don’t want to deplete my emergency fund for car repair or a new fridge. My emergency fund is there to replace my income should I lose my job. Anyway, I keep a few thousand dollars in Sub-Account #1. Once I’ve hit my target, the first Money Rule kicks in.

Money Rule #1 says anything over-and-above the target amount for Sub-Account #1 is to be automatically transferred to Sub-Account #2. I use this second sub-account to accumulate money for my annual RRSP contribution, annual insurance premiums, and property taxes.

Once the target amount for Sub-Account #2 is met, Money Rule #2 kicks in. Anything over-and-above the second target amount is transferred to the sub-account of my next highest priority, until all 5 sub-accounts have been fully funded.

It’s a pretty good system. Its biggest drawback is that I didn’t put it into action until last year. Ah, well… no sense crying over spilled milk. The fact remains that I’m using it now and my handwritten goals are still being funded. Tangerine allows its customers to change the names of the sub-accounts. As one goal is met, i.e. renovating the bathroom, I usually change the sub-account’s name to the next thing I want to get done. This is why one of my sub-accounts is currently named “New Blinds”. It’s not a particularly sexy name, but it effectively reminds me of how the money will eventually be spent!

Pursue your best life!

Is anything stopping you from meeting your money goals?

Maybe your memory is like mine. If so, you have my sympathy! You have goals, but you’ve forgotten what they are. It happens. Protect yourself from your faulty memory by using automatic transfers to fund your goals.

It’s also possible that other priorities popped up and derailed your goals. You know your life better than I do, so I’m not here to judge the choices that you made. I’m simply going to nudge you towards reviewing your goals and what you need to do to meet them. And if you can’t meet them this year, that’s fine too. What isn’t fine is giving up on your goals. You’ll never meet them if you quit pursuing them. That’s just how life works.

Personal finance is personal for a reason. Everyone’s circumstances are different. If unexpected events knocked your money of the path you’d set at the start of the year, then so be it. I’m simply here to give you a nudge about not abandoning your goals, even if events of this year went in a direction you hadn’t expected. No – I can’t promise that it will be easy. All I can do is encourage you to not give up on the goals you set for yourself, since I believe that they will get closer to living the life you want to live. And if they won’t bring you closer to your dream life, then ask yourself why you created them in the first place?

Your money goals should be helping you build your very best life. At the end of the day, money is a tool. When spent in a way that brings your dreams to life, that maximizes your joy & happiness, you are putting your money to its very best use. Give me one good reason why you shouldn’t be putting your money to good use.

So if your goals have gone sideways, figure out what you most important next step needs to be. Evaluate your money goals and determine if they’re still important to you. If yes, then figure out what you need to do in the next 13 weeks to get closer to achieving them. And if the money goals of early 2021 are no longer important, then define new ones and create a plan for achieving them. You’re the only person who knows your heart’s deepest desire. The responsibility lies with you to determine the most effective way to make your dreams come true. Start right now because your best life awaits!

Boost Your Income!

I’m going to take a leap of faith and assume that, if you’re reading this, then you also wish that you made more money. You work hard – you’ve got bills – there are things you want to do with your money. However, it seems like there’s never enough money to go around. You’ve applied for promotions but they always seem to go to someone else.

What if I were to tell you that there is a way to boost your income without a promotion?

It’s called investing your money!

Speaking from experience, I can tell you that I’ve applied for promotions and not gotten them. While being passed over was a bruise to my ego, those missed promotions were never a blow to my finances. And you know why? It’s because my investment account does the heavy lifting of increasing my income each and every year.

What?!?!!

Yes – it’s true. While it wasn’t a fast process, investing a portion of my disposable income every single month has been very beneficial for me. I’m not a particularly savvy investor, so I invested the lion’s share of my money into two exchange traded funds that focus on dividends – VDY and XDV. I also took advantage of the dividend re-investment plan – aka: DRIP – to ensure that all of the dividends I earned were automatically re-invested.

I used to earn a few dividends each month. Now, I earn a few thousand. Yes – you read that right. My decades-long habit of investing a portion of my paycheque each month continues to reward me handsomely. Diligent investing has resulted in a situation where my annual income goes up every year… without me ever having to rely on my boss for a promotion. I won’t lie to you – it’s a pretty sweet situation!

Now, go back to where I said that I’m not a particularly savvy investor. If I were as smart then as I am now (or atleast as smart as I think I am now), then I would’ve invested in equity-based exchange traded funds. As you may or may not know, the stock market was on a complete tear from 2009 to March of 2020. People who had invested in equities made buckets & buckets of money so long as they stayed invested. My dividend ETFs have been good to me, but equity-based ETFs would’ve been so much better!

There’s atleast one investor out there who has absolutely no qualms about sticking to dividends throughout his career. I can certainly understand why – he and his spouse now earn $360,000 in dividends each year. (Part 1 and Part 2 – thank you to Tawcan for sharing this interview with the world!)

Can you imagine? You’re busily going about the daily business of living and your portfolio is kicking off $30,000 in dividends per month! Even before his retirement, I’m sure this couple was making a solid six-figure income off their dividend portfolio every year. And I’m equally sure that they didn’t worry about whether they got the next promotion in the pipeline.

The Career Funnel

Most organizations with employees have what I like to call a career funnel. There’s many people at the lowest levels, but fewer and fewer position for people as you move up the organizational chart. Managers have a set number of people reporting to them – so it goes, all the way up to the top. Naturally, as an employee moves up the career funnel, it gets harder and harder to obtain a coveted promotion. While many may try, only a very few will succeed. This is the way of the hiring pyramid.

It would behoove you to not be too, too dependent on getting a promotion in order to live the life you want. I’m certainly not discouraging you from pursuing promotional opportunities! Of course not! What I am suggesting is that you work on a Plan B, while you’re building your career.

And that Plan B is to ensure that you’re investing some portion of your paycheque for your future. I’ll tell you the same thing I would tell 18-year old Blue Lobster if I could travel back in time. Invest no less than 15% of your net income into an equity-based exchange traded fund every single time that you are paid. Leave the money alone for 30 years and let it do its things. At the 30 year mark, start adding some bonds to your portfolio to temper the volatility.

Again, I’m no expert in the area of investing so do your own research. Save as much as you can – invest it in ETFs – leave it alone to grow – ignore the talking heads on the media. Equities are volatile, but they’ve always gone up over the long-term. They will boost your income if given enough time. If you can’t stay invested for the long-term, then you’ll have to find some other way to increase your annual income. Maybe that means killing yourself at work so that you improve your odds of getting that promotion.

The Unappreciated Benefit of Boosting Your Income Through Investing

First off, I want to say that I’m very fortunate to work with smart, pleasant people who are helpful and considerate. My team has each other’s back. We share knowledge and insights with each other. And when we disagree on issues, the discussions are respectful and all parties try to see the other perspective. My work is challenging and my colleagues all contribute to an extremely good working environment. If I ever have any regrets about retiring from my current position, they will be that I will no longer have as much contact with these people as I do now.

That said…

I’ve heard from many in my circle that their work environments are what can only be described as toxic. Some of my dear friends work with or for horrible human beings. They’ve tried to find other positions but haven’t yet found better working conditions that will pay similar amounts of money. Like many people who have no choice about staying in their job for the foreseeable future, they have to eat sh*t and they can’t really complain about it.

If you’re able to boost your income via your investment portfolio, then you can drastically cut back on the amount of crap that you have to take from colleagues and bosses. Think about it. If your investment account could churn off enough for you to meet your survival needs, then wouldn’t it be possible for you to supplement that with a lower-paying job?

And you wouldn’t have to keep that lower-paying job forever. I’m not suggesting that in the least! What I’m trying to say is that your investment account could help you preserve your mental health. You could avoid very bad things like depression and burnout. Your investment account gives you a path out of a toxic work environment, without trying to get a promotion. And once you find a job that doesn’t make you feel dead inside, then you can go back to living on your salary, re-instating your DRIP, and continuing to contribute to your investment account.

If you’ve been reading my blog for a while, then you know that I harp on diligent investing & saving, month-in-month-out. This is an ideal to which everyone should aspire. However, I’ve been alive long enough to know that very few are able to do this. There are some things in life that are more important than saving and investing. In my view, preserving and protecting your joie de vivre is one of those things.

Next Steps…

So if you have the disposable income to do so, start investing today.

And if you’re one of the ones who’s already started, then pat yourself on the back and keep going.

It will take some time, but your investment account will eventually allow you to wean yourself off the need to get promotions to maintain your lifestyle. By all means, continue to apply for those promotions if you wish. If you get them, great. A higher salary means you have that much more to invest. After all, whatever increase you see in your take-home pay should be properly allocated between today and tomorrow.

If you don’t get the promise, then you need not fret. You can still be content in the knowledge that your investments are building your income without any influence from your employer. Even without the promotion, you’re increasing the likelihood that, financially, you’ll still be just fine.

Are you doing what you want with your money?

Two thirds of 2021 are in the rearview mirror. You should probably spend a few minutes figuring out if you’re doing what you want with your money.

In other words, is your money moving you closer to or further from your life’s goals?

Maybe dealing with your money is just one-more-thing, and you’re dealing with enough. I get it, really! The pandemic is lasting way longer than we’d expected. The climate change consequences are no longer something to worry about later. The impacts are being seen and felt right now, every single day, all over the world. There’s a lot going on and it’s not all good, so that might make it harder to focus on mastering money.

Be that as it may, there have always been lots of significant events going on in the world. Gues what? There always will be. However, while we’re striving to make the world a better place, you still need to put your money to work. The state of the world doesn’t absolve you of the responsibility you have to Future You.

There is a straight-forward way for amateur investors such as ourselves to invest. It’s our best bet to improve the odds that we’ll be able to live comfortably when we’re no longer sending our bodies and minds to work every day.

Allow me to share my secret with you, again. Put your money on auto-pilot! You’ve got enough to worry about and investing money for your future need not be on that list. Set it up once then let the magic of computers do the rest.

  1. Set up an automatic transfer of a set amount of money from your chequing account to your emergency fund.
  2. Set up a second automatic transfer to your investment account. This can also be your retirement account.
  3. Buy units in equity-based exchange traded funds or index funds with management expense ratios below 0.25%.
  4. Don’t withdraw money from your investment account.
  5. Save. Invest. Learn. Repeat.
  6. Live on whatever’s leftover after these transfers have gone through.

Doing these few things will save your bacon when the time comes. You might feel that you want to spend all of your money right now. After all, tomorrow is promised to no one and you only live once, right? There’s a certain seductive allure to that perspective. Resist! You’re going to need money for all of the tomorrow’s headed your way. You might not know how many of them you’ll get, but the odds are very good that you’re going to need money for most of them.

The bottom line is that you should be doing what you want with your money. If you’re not, figure out why and do what needs to be done to change that situation.

Pay Off Your Credit Cards Every Month

During my time on this little blue ball we all call home, I’ve learned a few things. This blog is about personal finance so I’ll limit my comments here to that topic. Today, I’d like to take a look at credit cards. Many people attribute negative associations to these little plastic rectangles. It’s easy to understand why. After all, credit cards allow people to dig themselves into very deep debt-holes.

This is truly unfortunate.

There is another perspective worth considering. It’s that credit cards are a tool when the cardholder pays off their debt in full, every single month. Paying the bill in full every month allows cardholders to accumulate rewards for their spending without every paying a penny of interest to the credit card companies. Is it any wonder that the credit card companies call these customers “deadbeats“?

When it comes to credit cards, I’m committed to the belief that you should pay off your credit cards every month. There are a myriad of ways to do this, but the following three methods are the best.

Automatic Transfers on a Set Schedule

I learned about this method from a dear friend. Sam pays a fixed amount towards his credit card every two weeks, when he gets paid. He’s not a stickler for details and is too busy to check every charge on his bill. (I find this astonishing, but whatever.) Sam never misses a payment, though. He has restricted his credit card limit. His credit card company can’t just raise his limit. They need his permission first. Sam keeps his limit around $3,000 per month. Every two weeks, he sends $1500 to his credit card company. This way, he never goes over his limit and his bill is always paid in full by the due date.

Sam charges everything on his credit card, up to $3,000. Every time he gets paid, Sam makes a payment of $1,500 to his credit card company. Easy peasy, lemon squeezy! Sam benefits from accumulating points on his credit card. He’s staying out of debt. He never pays interest on his credit card charges. I’m suspecting that he’s also building a stellar credit history since he always pays his bill on time.

It’s not my way of doing things, but it works for Sam. Who am I to tell him that he’s wrong?

Itemize, Pay & Repeat

My personal method of paying off credit cards is the Nerd’s Way. It’s more intensive but it’s also more informative. Since the pandemic, I’ve been using my credit cards for all purchase both large and small. I record each purchase in a spreadsheet so I know how much it costs to run my life. A couple of days after a purchase, I log into my bank account to see if the charge has been posted. If the answer’s yes, then I make a bill payment to my credit card in the amount of that purchase. Did I spend $74.89 at the grocery store? Why, yes I did! And did I subsequently make a $74.89 bill payment to my credit card a few days later? You can bet your bottom dollar that I did that too!

I’m a stickler for details. Keeping track of my expenditures bring me a measure of comfort. It reassures me that I know where my money is going. Even if it feels like it’s slipping through my fingers, atleast I know that it’s going where I want it to go.

And much like my friend Sam, I’m earning beaucoup points towards free groceries. (Shout out to PC Financial!) As an aside, I do love free groceries. I need to eat and I’m using a credit card to pay for stuff anyway. In my situation, it makes sense to earn points for food.

Just Pay It Off

This is self-explanatory. When the bill comes in, you pay it. No muss, no fuss.

If you have another good way of fully paying off your credit card bill each month, please share with the class.

In my opinion, there’s absolutely nothing wrong with using credit cards so long as you pay off your credit cards every month. Any of the methods outlined above will allow you to accumulate points and build or maintain your credit score. All three of these methods will work so long as they’re put into practice.